Case Analysis 4: Corporate Tax Return and Tax Research
Part 1: Tax Return
Based on the information provided by Pet Kingdom, Inc. (from Corporations: Introduction and Tax Rules chapter), prepare the firm’s tax returns. Attached all required schedules.
Part 2: Tax Research
Subject: Repayment agreement between the Merinoffs and Flamingo Corporation
Facts: Kenny and John Merinoff are the sole shareholders of Flamingo Corporation. They are also officers of the corporation and members of the board of directors. In 2008, the Merinoffs entered into a repayment agreement with Flamingo, which stipulated that they would reimburse the corporation for any salary that was subsequently disallowed as a deduction by the IRS. In late 2014, the IRS recharacterized $350,000 of John’s 2013 salary and $400,000 of Kenny’s 2013 salary as constructive dividends, disallowing Flamingo’s compensation deduction for these amounts. Pursuant to the 2008 agreement, Kenny and John repaid the amount disallowed to Flamingo in 2015.
Issues: How should the repayment by Kenny and John be treated for income tax purposes?
Provide a complete response to the issues in this case. Provide appropriate supporting references including applicable IRS code.
Due Date: Due to the nature of this assignment, you need to submit two different files: one for Part 1 and another one for Part 2.
On time answer